Bloomberg News

Debt Deal First Step to Fiscal Integrity, Fisher Says: Tom Keene

August 01, 2011

Aug. 1 (Bloomberg) -- The debt-limit agreement reached by congressional leaders is a positive step for the U.S. while deficit reduction will remain a long-term challenge, according to BlackRock Inc.’s Peter Fisher.

“The politicians have understood that they had to put the threat of a default behind us,” said Fisher, head of fixed income at the world’s biggest money manager in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We are really just looking at the first big step toward fiscal rectitude by the federal government, and it’s going to take several years to get it on path.”

Congressional leaders are working to push through a compromise sealed with President Barack Obama last night to raise the U.S. debt limit by at least $2.1 trillion and slash government spending by $2.4 trillion or more. The House plans votes today, and the Senate may follow suit to consider the agreement reached during a weekend of negotiations that capped a months-long struggle between Obama and Republicans over raising the $14.3 trillion debt ceiling.

Treasuries pared losses today as the reduced risk of a default encouraged demand for U.S. debt. Yields on 10-year notes increased two basis points, or 0.02 percentage point, to 2.82 percent, according to Bloomberg Bond Trader prices.

The U.S. still faces the threat of a credit-rating downgrade, according to Fisher, 55, based in New York.

“Politicians went too far with the threat of default,” Fisher said in an interview with Deirdre Bolton on Bloomberg Television’s “InsideTrack.” Even with the pending agreement, the U.S. remains “right on the cusp” of a downgrade, he said.

Spending Reduction

The budget agreement would raise the debt ceiling in two installments, sufficient to serve the nation’s needs into 2013. The framework, as detailed by officials in both parties, would cut $917 billion in spending over a decade, raise the debt limit initially by $900 billion and assign a special congressional committee to find another $1.5 trillion in deficit savings by late November, to be enacted by Dec. 25.

If Congress met that deadline and deficit target, or voted to send a balanced-budget constitutional amendment to the states, Obama would get another $1.5 trillion borrowing boost.

In the case of Congress failing to take either step, or not producing debt savings of at least $1.2 trillion, the plan allows the president to obtain a $1.2 trillion debt-ceiling extension. Still, that would trigger automatic spending cuts across the government -- including in defense and Medicare -- to take effect starting in 2013. The Medicare cuts would only affect provider reimbursements, not benefits.

“It’s encouraging that they’ve at least understood that shooting a hole in the bottom of the boat would not be a good plan,” said Fisher in the Bloomberg Radio interview. “They are going to have to grapple with how to cut spending with the political realities the parties have been wrangling about. It’s great they have a trigger mechanism to force them to action, but it is going to get harder and harder each month we get closer to the election in 2012.”

--With assistance from Dave Liedtka in New York. Editors: Dennis Fitzgerald, Paul Cox

To contact the reporters on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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